The second problem was practical. “What I didn’t appreciate was the extent to which we only got one shot on stimulus,” Romer says. “In my mind, we got $800 billion, and surely, if the recession turned out to be worse than we were predicting, we could go back and ask for more. What I failed to anticipate was that in the scenario that we found we needed more, people would be saying that what was happening showed that stimulus, in general, didn’t work.”
And even if Congress was willing to green-light more money, spending it turned out to be harder than the Keynesians had hoped. “Anybody who is honest and knowledgeable will say it is harder to move money quickly and well in reality than it is in the textbook model. I don’t think the idea that lots more money could have been moved is credible unless there had been a whole set of prior planning,” Summers says.
Ezra Klein
Ezra Klein is the editor of Wonkblog and a columnist at the Washington Post, as well as a contributor to MSNBC and Bloomberg. His work focuses on domestic and economic policymaking, as well as the political system that’s constantly screwing it up. He really likes graphs, and is on Twitter, Google+ and Facebook. E-mail him here.
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July 5 (Bloomberg) -- Christina Romer, former chairman of President Barack Obama's Council of Economic Advisers and a Bloomberg contributing editor, talks about the federal deficit. She also discusses the prospects for inflation and economic growth.
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Prior planning, it turns out, is important. Keynesianism may be a theory of crises, but it requires planning during non-crisis periods. And looking back, we weren’t prepared to go Keynesian. At all.
For one thing, if you’re going to spend during downturns, you have to save during expansions. That wasn’t a big part of George W. Bush administration policy, of course.
Another clear takeaway is that formulas are more reliable than Congress. It would be much better if federal support for programs such as Medicaid and unemployment insurance was explicitly tied to the unemployment rate. Hoping Congress will act responsibly over any extended period of time isn’t, as they say, a plan.
It would also be good to keep projects in “shovel-ready” condition when times are good so that federal money could be used effectively and quickly when times turn bad. Undeniably, the country’s infrastructure needs are great. If the federal government made a more explicit commitment to invest in infrastructure during downturns, states could be given the certainty and the incentives to keep a long list of projects ready to go.
But rather than improving on Keynes, the Republican Party has turned against him and the Democratic Party has stopped trying to defend him, much less continue to implement his recommendations.
“The polarization of fiscal policy is one of the worst legacies to come out of the recession,” Romer says, sighing. “Before the crisis, there was agreement that what you do when you run out of monetary tools is fiscal stimulus. Suddenly, it’s like we’re back in the 1930s.”
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